New to investing, need advice

[poeticjustice]

I'm 31 and have spent the last 10 yrs messing about with career choices and travelling. Need to get serious about the future and have started reading and learning about investing and getting my money to work for me. Just starting a new job. Salary is good and I'm trying to decide the best way to get the most out of it.

I'm on 72k a year and want to start a pension. There's no company pension plan although they do offer a PRSA with Irish life for those that want to partake. I have an existing pension with Zurich with very little contributed to it. Just over 1k. I also want to invest a good chunk of my earnings, maybe in a low cost index fund for long term although I'm open to active funds or other suggestions.

Is now a good time to start? I read a lot about how timing the market is very difficult and how for long term investments, for example 20+ yrs, that it shouldn't matter too much when you invest but it's something I can't fully wrap my head around.

For example, if I buy in now when indexes are high and if they drop in value then obviously my investment loses value. So I keep faith, continue investing and don't sell. Over the years the price rises again, my investment gains back it's value. Do I make money during this period or have I mainly just salvaged my original investment? Apologies if it's a basic concept but I can't get it clear in my head!! :/

-What is attracting you to investing? - I want to maximise my moneys potential so I can hopefully retire well before i'm 65, preferably in my 50s or sooner. Thats the goal.
-What existing savings have you - Have 10k in a savings account.
-Do you want to save or invest - Invest
-Have you any high interest credit card - Always pay off credit card on time
-Have you a rainy day fund of 3-6 months salary - 10k rainy day fund
-Have you a pension - yes but not worth much
-Have you any investment property - no
-What exactly constitutes success for any investment portfolio - higher return than inflation and savings accounts.
-How long are you happy to be without this money - 20+ yrs
-What would you do if value dropped 30% overnight - obviously not ideal but id keep calm and keep investing
-What is your tax rate - 40%
-Are you taxed in Ireland - yes
-Have you any existing CGT losses - No

I'm unmarried, have no kids, don't want kids, no mortgage and currently living at home to save money so I'm in a good position I feel. Have girlfriend and ideally would love to buy a house in 2-3 years with her, all things going well. Both in stable jobs.

I've taken online risk assessments and I feel I'm young enough to take fairly high risks at this stage. So this is what I'm thinking:
-Take out a PRSA with a low cost broker like LABroker and max it out to take advantage of tax incentives. 1% annual management fees but no contribution fees compared to 5% contribution fees dealing direct with Zurich or Irish Life.
-1000/month (maybe more) in low cost index fund (or other investment) with degiro or other low cost transaction fee broker
-1000/month (maybe more) in EBS savings account for future house deposit and to demonstrate my ability to save.

I'm looking to meet with an independent financial advisor too as I feel this would be beneficial so asking friends and colleagues for recommendations at the moment. Would like to have some knowledge before that initial meeting.

Totally new to this so I'm sure there are lots mistakes in there. Any advice would be greatly appreciated.

 

[Sarenco]

Hi there

First off, congratulations on securing such a lucrative position at a relatively young age. You are in a fantastic position to start looking to the future.

There's a Chinese proverb to the effect that the best time to plant a tree was 20 years ago and the second best time is today. So it is with investing - trying to time the market is a complete waste of energy - time in the market is ultimately what matters. Around 99% of Warren Buffett's vast fortune was generated after he turned 50 (and he started investing in the stock market when he was 11)!

I wouldn't get too hung up about different funds/allocations at this stage. Where the amount invested is relatively small, it really doesn't make that much difference. Just make sure you start.

Something like Irish Life's consensus fund (or similar) is a fine option at this stage - it's very diversified and largely passive. You can always tweak your allocation at a later stage to better reflect your evolving risk appetite/investing philosophy. Remember that the enemy of a good plan is the dream of a perfect plan.

You can currently get tax relief on pension contributions up to 20% of your gross income (€14,400). However, you obviously have other calls on your income at your stage in life so I wouldn't feel under any pressure to max out your pension contributions - if you can manage €1,000 per month that would be fantastic.

I'm a great believer in automating the contribution process so far as possible. Decide what you want to contribute, set up a monthly direct debit, advise your accounts department and get on with living your life.

Don't worry about market fluctuations - you can't control the markets so why waste your time worrying about them? Always remind yourself that if the markets are plunging that means you are picking up investments on the cheap!

Outside of investing through a pension vehicle, I would just stick with saving in plain old vanilla savings accounts for the time being (get out the "Best Buys" section). If you are thinking about buying a property in the relatively near future you will need all the cash you can get your hands on!

I would just sound a note of caution on the house purchase. I'm not saying you shouldn't buy with your GF, just make sure you are both comfortable making such a long term commitment - there's no rush, you can always rent for a while.

Hope that helps.

 

[Dan Murray]

....Hope that helps.

I'm sure it will. Excellent post, Sarenco.

 

[poeticjustice]

Hi there

First off, congratulations on securing such a lucrative position at a relatively young age. You are in a fantastic position to start looking to the future.

There's a Chinese proverb to the effect that the best time to plant a tree was 20 years ago and the second best time is today. So it is with investing - trying to time the market is a complete waste of energy - time in the market is ultimately what matters. Around 99% of Warren Buffett's vast fortune was generated after he turned 50 (and he started investing in the stock market when he was 11)!

I wouldn't get too hung up about different funds/allocations at this stage. Where the amount invested is relatively small, it really doesn't make that much difference. Just make sure you start.

Something like Irish Life's consensus fund (or similar) is a fine option at this stage - it's very diversified and largely passive. You can always tweak your allocation at a later stage to better reflect your evolving risk appetite/investing philosophy. Remember that the enemy of a good plan is the dream of a perfect plan.

You can currently get tax relief on pension contributions up to 20% of your gross income (€14,400). However, you obviously have other calls on your income at your stage in life so I wouldn't feel under any pressure to max out your pension contributions - if you can manage €1,000 per month that would be fantastic.

I'm a great believer in automating the contribution process so far as possible. Decide what you want to contribute, set up a monthly direct debit, advise your accounts department and get on with living your life.

Don't worry about market fluctuations - you can't control the markets so why waste your time worrying about them? Always remind yourself that if the markets are plunging that means you are picking up investments on the cheap!

Outside of investing through a pension vehicle, I would just stick with saving in plain old vanilla savings accounts for the time being (get out the "Best Buys" section). If you are thinking about buying a property in the relatively near future you will need all the cash you can get your hands on!

I would just sound a note of caution on the house purchase. I'm not saying you shouldn't buy with your GF, just make sure you are both comfortable making such a long term commitment - there's no rush, you can always rent for a while.

Hope that helps.

Hi Sarenco. Thanks for such a thorough post. Very helpful and very much appreciated.

Yeah, the plan is to contribute the full 20% towards my pension. I feel I can afford it especially while I'm living at home and can afford that little bit more. I'll automate my contributions and forget about them like you said.

So to sum up, your advice is max out my pension and save the rest in a regular deposit account? I believe KBC and EBS currently offer 3% which seems to be the best around at the moment. I was advised it may be a good idea to pay off my mortgage as quickly as possible (if that's the road I decide on) and worry about investments after that. Would you go along with that?

Thanks for the advice. I certainly wouldn't rush a decision like buying a house with my gf. I just don't like the idea of wasting money on rent again for too long but will give it lots of consideration.

Thanks again.

 

[Sarenco]

So to sum up, your advice is max out my pension and save the rest in a regular deposit account?

Pretty much.

I certainly think you should max out your pension contributions before investing elsewhere but you need to balance your long-term financial goals (funding your retirement) with your medium-term goals (the future house purchase). Maybe consider saving towards the house purchase and your retirement at a ratio of something like 2:1.

I was advised it may be a good idea to pay off my mortgage as quickly as possible (if that's the road I decide on) and worry about investments after that. Would you go along with that?

I would.

In general, there are good arguments for not aggressively paying down a mortgage ahead of schedule as it's a relatively cheap inflation hedge. However, given our mortgage rates and our (frankly larcenous) tax rates on investment income and gains, I am strongly of the view that paying down a mortgage before investing outside a pension vehicle is the right approach in the vast majority of circumstances.

I just don't like the idea of wasting money on rent again for too long but will give it lots of consideration.

There are pros and cons (both financial and non-financial) to owning as opposed to renting your home. However, it's a peculiarly Irish attitude that views rent as "wasting" money. At the end of the day, it's simply a payment for a service (shelter) received and a mortgage is really just renting money from the bank.

Remember a landlord is somebody who pays the mortgage (and all the other costs associated with insuring, taxing and maintaining the property) so his tenants don't have to!

 

[cremeegg]

Have you considered buying an investment property?

 

[poeticjustice]

Pretty much.

I certainly think you should max out your pension contributions before investing elsewhere but you need to balance your long-term financial goals (funding your retirement) with your medium-term goals (the future house purchase). Maybe consider saving towards the house purchase and your retirement at a ratio of something like 2:1.

Regarding my pension, if I contributed more than the 20%, for example 2000/month instead of the 1440, would the extra 560 contribution be subject to capital gains tax like a regular investment? I realise this 560 would come from my after tax salary.

I would.

In general, there are good arguments for not aggressively paying down a mortgage ahead of schedule as it's a relatively cheap inflation hedge. However, given our mortgage rates and our (frankly larcenous) tax rates on investment income and gains, I am strongly of the view that paying down a mortgage before investing outside a pension vehicle is the right approach in the vast majority of circumstances.

Yeah, I see the logic in this now and agree with you. I wasn't sure if investing even a small amount now would be a good idea to get compound interest to start work but the tax issue seems like all into mortgage is the way to go.

There are pros and cons (both financial and non-financial) to owning as opposed to renting your home. However, it's a peculiarly Irish attitude that views rent as "wasting" money. At the end of the day, it's simply a payment for a service (shelter) received and a mortgage is really just renting money from the bank.

Remember a landlord is somebody who pays the mortgage (and all the other costs associated with insuring, taxing and maintaining the property) so his tenants don't have to!

No offense intended here. Renting has it's place for sure and i've used it gratefully for many years. But at this stage in my life I feel that any money I would spend on renting, especially at todays prices would be much better going towards mortgage repayments and something to show for the money in a few years time. "Wasting" may have been the wrong word for me to use.

Thanks again Sarenco

 

[poeticjustice]

Have you considered buying an investment property?

Hey cremeegg. Yeah I've thought about it. Would need to do some serious research because I don't know a lot about it apart from reading a few threads here and there and some books.

Do you mean as a future investment after I have my own (future) mortgage paid off or right now and be a live in landlord? Also would you see this as a better investment than the stock market?

 

[bleary]

Thanks for the advice. I certainly wouldn't rush a decision like buying a house with my gf. I just don't like the idea of wasting money on rent again for too long but will give it lots of consideration.

If ye haven't lived together before I would advise you to do so, it's a lot cheaper than working out you drive each other crazy after buying somewhere together. And seriously you are 31 living at home earning over 70k a year, you need to contribute a reasonable amount to your living expenses you should not be fleadhing your family. Pay something reasonable , if they want to give it back you when you but somewhere fair enough but it's healthier for everyone if people aren't taken advantage of.
Also I'm all for saving but your salary will work out just over 3000 a month so you're not leaving a lot to live on with the savings and pension you are talking about?

 

[cremeegg]

Hey cremeegg. Yeah I've thought about it. Would need to do some serious research because I don't know a lot about it apart from reading a few threads here and there and some books.

Running a buy to let is not rocket science.

Do you mean as a future investment after I have my own (future) mortgage paid off or right now and be a live in landlord?

Well like any investment the best time to start is yesterday. Having said that you would need to be happy with the decision first, in terms of commitment, personal circumstances etc. Also I would probably look at a pension first.

Also would you see this as a better investment than the stock market?

While all the research suggests that shares out perform property, the thing about property is you can get leverage. Basically if you save €1k a month you might get 3% on €6k (the average of €0 to €12k this year. If you borrowed €150k you might get 2% on €150k of the banks money.

If you can get that kind of leverage, you need to be careful with it. Its like fire, useful but dangerous.

 

[poeticjustice]

If ye haven't lived together before I would advise you to do so, it's a lot cheaper than working out you drive each other crazy after buying somewhere together. And seriously you are 31 living at home earning over 70k a year, you need to contribute a reasonable amount to your living expenses you should not be fleadhing your family. Pay something reasonable , if they want to give it back you when you but somewhere fair enough but it's healthier for everyone if people aren't taken advantage of.
Also I'm all for saving but your salary will work out just over 3000 a month so you're not leaving a lot to live on with the savings and pension you are talking about?

Yeah we plan on renting a place together next year. We're not naive about this and wont be buying a house together if it's not the right thing to do. Either way, I plan on buying a house in the next 2-3 years whether we are together or not. Thanks for the advice though.

Not sure why you'd jump to the conclusion that I'd fleece my family. Of course I'm contributing and it's more than a reasonable amount. It's still no where near the crazy rent prices on the market at the moment though so I'm saving money. No one is getting taken advantage of.

My net salary will work out at just under 4000 a month. My pension will cost 720 a month net. Then I take off rent and living expenses. The remainder will be put in a savings account for my house deposit. Not sure what you're referring to if I'm honest. I'll be frugal enough for the next 12 months trying to build up my deposit.

 

[poeticjustice]

Running a buy to let is not rocket science.



Well like any investment the best time to start is yesterday. Having said that you would need to be happy with the decision first, in terms of commitment, personal circumstances etc. Also I would probably look at a pension first.



While all the research suggests that shares out perform property, the thing about property is you can get leverage. Basically if you save €1k a month you might get 3% on €6k (the average of €0 to €12k this year. If you borrowed €150k you might get 2% on €150k of the banks money.

If you can get that kind of leverage, you need to be careful with it. Its like fire, useful but dangerous.

Not suggesting it's rocket science cremeegg. But I'd like to understand if it's worth my while and a better investment than shares or other investment forms. I'm new to this

Like the example you just gave about leverage. It's a very good point and I want to understand more concepts like this before I take the plunge.
Pension is definitely my priority now and will go from there.

Thanks for your help.

 

[Sarenco]

Regarding my pension, if I contributed more than the 20%, for example 2000/month instead of the 1440, would the extra 560 contribution be subject to capital gains tax like a regular investment? I realise this 560 would come from my after tax salary.

No, but remember that any amount ultimately drawn down from the pension pot is also subject to income tax.

Yeah, I see the logic in this now and agree with you. I wasn't sure if investing even a small amount now would be a good idea to get compound interest to start work but the tax issue seems like all into mortgage is the way to go.

Bear in mind that paying down a mortgage ahead of schedule also has a compounding effect. Unfortunately, so does inflation!

I would suggest that this thread should be compulsory reading for anybody contemplating a leveraged BTL investment:-
http://askaboutmoney.com/threads/tax-take-on-rental-income-is-staggering.200198/

 

[David_Dublin]

I'm 31.....

I'm unmarried, have no kids, don't want kids

Have girlfriend and ideally would love to buy a house in 2-3 years with her, all things going well......

I know it is slightly off topic/none of my business, but I'm not sure the bold bit is compatible with the rest, or what the future might hold.

I'm approaching mid-forties, I was exactly the same as you early thirties. Exactly. I had a good job, no debt, didn't want kids, had just started renting with the GF. I now have a wife and two children now. Just sayin', things change, not everything works out how you expect it to. But you're off to a great start anyhow, don't sweat it.

Best of luck with everything!!

 

[poeticjustice]

I know it is slightly off topic/none of my business, but I'm not sure the bold bit is compatible with the rest, or what the future might hold.

I'm approaching mid-forties, I was exactly the same as you early thirties. Exactly. I had a good job, no debt, didn't want kids, had just started renting with the GF. I now have a wife and two children now. Just sayin', things change, not everything works out how you expect it to. But you're off to a great start anyhow, don't sweat it.

Best of luck with everything!!

I guess I included it to show that currently I've no expenses relating to children who I hear can be quite the drain on money You're right though, things can change for sure. Highly unlikely for a number of reasons but if they do, i'll make the needed amendments. As of now, a pension and a mortgage seem a safe way to go whatever the future brings.

Thanks for your advice Dave and good luck to you too!!

 

[poeticjustice]

No, but remember that any amount ultimately drawn down from the pension pot is also subject to income tax.

Bear in mind that paying down a mortgage ahead of schedule also has a compounding effect. Unfortunately, so does inflation!

I would suggest that this thread should be compulsory reading for anybody contemplating a leveraged BTL investment

Yeah, that's the sort of reading I was talking about regarding BTL. Lots of research to be done and to be honest I think it's a potential plan for the future as opposed to the present for me. Certainly worth looking into though.

Thanks Sarenco.

 

[johnny1234]

Right, I'm coming clean, as if and when Brendan sees this he will again ban me from this site. Reason is I don't know especially he calls himself the people's champion. I invested a seven figure sum via a large Irish institution and in essence was defrauded for a large portion of the entire. It went through the Ombudsman, the High Court and very soon it will be very, very public. Heads did roll, but the same people are able to do the same thing all over again.

The main thing to remember is to keep all and every piece of paperwork. For important meetings back them up with written correspondence to confirm meetings of note. And be very careful which institution you use.

Sarenco has offered good unbiased opinion. Remember what he wrote. In fact if he is an advisor, he's one that I would use, and there really ain't a whole pile of honesty in Financial products in this country.

Good luck yo you.

 

[poeticjustice]

Right, I'm coming clean, as if and when Brendan sees this he will again ban me from this site. Reason is I don't know especially he calls himself the people's champion. I invested a seven figure sum via a large Irish institution and in essence was defrauded for a large portion of the entire. It went through the Ombudsman, the High Court and very soon it will be very, very public. Heads did roll, but the same people are able to do the same thing all over again.

The main thing to remember is to keep all and every piece of paperwork. For important meetings back them up with written correspondence to confirm meetings of note. And be very careful which institution you use.

Sarenco has offered good unbiased opinion. Remember what he wrote. In fact if he is an advisor, he's one that I would use, and there really ain't a whole pile of honesty in Financial products in this country.

Good luck yo you.

Hi Johnny. Sounds like you've been through the wars. Sorry to hear that and hope it works out.

Do you have a particular institution you would recommend, or avoid for that matter? I'm cautious regarding a number of financial products and am currently looking for the safest and most cost effective way to get my pension in order. Would love to hear your opinions if indeed you are allowed share them here.

Sarenco has been very helpful and I'm taking his advice on board for sure.

 

[johnny1234]

Not only have I been through the wars, to lose that amount of money isn't that funny. Moreover it effects thousands of people and legacies. An Actuarial guesstimate reckons it could cost the Institution hundreds of millions if and when found out. All I wanted was my own money returned and an apology.

If you PM me I'll give you further details.

 

[moneybox]

Not only have I been through the wars, to lose that amount of money isn't that funny. Moreover it effects thousands of people and legacies. An Actuarial guesstimate reckons it could cost the Institution hundreds of millions if and when found out. All I wanted was my own money returned and an apology.

If you PM me I'll give you further details.

Sorry to hear of the extreme stress you have endured. . It sounds horrendous.
I sincerely hope you will be refunded.